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Regal Beloit (RBC) Q2 Earnings Top Estimates, Sales Miss

Regal Beloit Corporation RBC delivered mixed results for the second quarter of 2020. Its earnings surpassed estimates by 46.15% — this being the fourth consecutive quarter of impressive earnings results. However, its quarterly sales lagged estimates by 3.39%.

Adjusted earnings in the reported quarter were 95 cents per share, surpassing the Zacks Consensus Estimate of 65 cents. However, the bottom line declined 36.2% from the year-ago quarter’s figure of $1.49 on weak sales performance and a fall in operating margins.

Revenue Details

In the reported quarter, Regal Beloit’s net sales were $634.1 million, declining 27.4% year over year. Organic sales in the quarter fell 24.7%, while forex woes and divestments had adverse impacts of 1.2% and 1.5%, respectively.

Also, the top line lagged the Zacks Consensus Estimate of $656 million.

Excluding the impacts of divested businesses, the company’s adjusted net sales in the reported quarter were $634.1 million, down 25.9% year over year.

Regal Beloit reports results under four segments — Climate Solutions, Commercial Systems, Industrial Systems and Power Transmission Solutions. The quarterly segmental results were adversely impacted by the pandemic. A brief discussion is provided below:

Revenues from Climate Solutions totaled $178.2 million, declining 33.5% year over year. It represented 28.1% of net sales. The results were adversely impacted by an organic sales decline of 31.4%, forex woes of 0.7% and divestiture impact of 1.4%.

Commercial Systems’ revenues, representing 27.7% of net sales, were $175.9 million, down 28.6% year over year. Organic sales in the reported quarter declined 23.6%, while divestments resulted in an adverse impact of 3.8%. Also, forex woes lowered sales by 1.2%.

Industrial Systems generated revenues of $120.6 million, reflecting a year-over-year decline of 22.4%. It represented 19% of the quarter’s net sales. Organic sales decreased 19.8% year over year. Forex woes hurt results by 2.6%.

Power Transmission Solutions’ revenues, representing 25.2% of net sales, were $159.4 million, down 21.9% year over year. Organic sales dipped 21.1%. Forex woes and divestments had adverse impacts of 0.7% and 0.1%, respectively.

Margin Picture

In the reported quarter, Regal Beloit’s cost of sales declined 27.5% year over year to $463.8 million. It represented 73.1% of net sales versus 73.2% recorded in the year-ago quarter. Gross profit decreased 27.2% year over year to $170.3 million, while margin increased 10 basis points (bps) to 26.9%. Operating expenses of $121.6 million decreased 11.9% year over year and represented 19.2% of net sales in the quarter.

Adjusted operating profit was $59.5 million, down 36.6% year over year, while margin declined 160 bps to 9.4%. Interest expenses in the quarter were down 20.9% year over year to $10.6 million.

Adjusted effective tax rate in the quarter was 22.4% versus 20.4% in the year-ago quarter.

Balance Sheet and Cash Flow

Exiting the second quarter of 2020, Regal Beloit had cash and cash equivalents of $432.2 million, reflecting a 28.5% decline from $604.5 million recorded in the last reported quarter. Long-term debt decreased 17.5% sequentially to $1,125.1 million.

In the quarter, the company’s net repayments under revolving credit facility totaled $239.5 million.

In the first half of 2020, Regal Beloit generated net cash of $189.6 million from operating activities, reflecting year-over-year growth of 45.2% from $130.65 million reported in the year-ago period. The company’s capital investment for purchasing property, plant and equipment decreased 63.7% from the year-ago figure to $20.4 million. Free cash flow was $169.2 million in the quarter versus $74.4 million in the year-ago period.

Free cash flow (as a % of adjusted net income) was 255.4% in the second quarter and 219.2% in the first half of 2020.

During the first half of 2020, the company paid out dividends totaling $24.3 million to shareholders and repurchased shares worth $25 million (no buybacks were made in the second quarter).

Outlook

In the quarters ahead, the company anticipates gaining from its cost-control measures that are essentially implemented to deal with the pandemic. Total cost savings are anticipated to be $42 million in 2020. Also, its existing restructuring and supply-chain efforts as well as reorganization actions (80/20) might aid.

The company is wary about the impacts of uncertainties related to the pandemic on its near- and mid-term demand for products. For now, it refrained from providing earnings and sales projections for 2020. However, the company predicts a year-over-year sales decline of 8-12% for the third quarter. Deleverage on net sales will likely be 12-18%.

Capital expenditure in the year is expected to be $50 million; adjusted effective tax rate will likely be 21%, and restructuring and related costs will probably be $25 million. Free cash flow (as a % of adjusted net income) will likely be more than 125%.

Regal Beloit Corporation Price, Consensus and EPS Surprise

 

Regal Beloit Corporation Price, Consensus and EPS Surprise

Regal Beloit Corporation price-consensus-eps-surprise-chart | Regal Beloit Corporation Quote

Zacks Rank & Other Stocks to Consider

With a market capitalization of $3.8 billion, Regal Beloit currently carries a Zacks Rank #2 (Buy).

Some other top-ranked stocks in the industry are II-VI Incorporated IIVI, ABB Ltd ABB and Rexnord Corporation RXN. While II-VI Incorporated currently sports a Zacks Rank #1 (Strong Buy), both ABB and Rexnord carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

In the past 60 days, earnings estimates for all these companies improved for the current year. Further, earnings surprise for the last reported quarter was 213.33% for II-VI Incorporated, 100.00% for ABB and 33.33% for Rexnord.

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